China's steel sector reforms to realign global demand-supply dynamics: ISA Secretary General

China's 'dual carbon' policy, production cuts in the emissions-intensive steel industry and capacity swaps are expected to effect a significant realignment in the global steel demand-supply matrix, Alok Sahay, Indian Steel Association's (ISA's) new Secretary General, told SteelMint during a freewheeling interaction recently.

Supply-side readjustments

"China has taken out most of its excess capacity. Right now, the game is about readjusting demand and production around the globe. We are not seeing the scenario of CY'14-16 when excess capacity got dumped at artificially low prices and international steel prices had slumped. The current situation is more a realignment of production and demand globally," Sahay observed.

Dwelling on China's steel exports, Sahay said: "China has come out with a clear priority of exporting only high-value steel. However, certain basic grades will also get exported. The point is, globally capacities having gone off, and steel being capital-intensive - it cannot be switched on and off easily - there will have to be realignment of demand and supply throughout the globe."

"For instance, Vietnam's steel exports have grown but its GDP has fallen in the last quarter. Such realignments are going to happen without offsetting the balance in any geography and thus not have any sharp impact on prices worldwide Next year, quotas for Europe will open up and which will be a trigger for European buying," he added.

Pandemic and after

Commenting on whether China is likely to increase steel imports to plug the domestic supply gap, Sahay observed: "China has never been a huge importer. Because of the pandemic, an extraordinary situation was created due to which the Chinese government offered a lot of fiscal stimulus, especially to the construction sector. This resulted in extra demand emerging in China. This led China to source billets from other geographies."

Indian mills capitalised on this by sending billets to China. India too was under a lockdown with domestic demand having dropped sharply, so billets and finished steel exports became important.

"But this was in the backdrop of an abnormal situation," he was quick to add. "Now, we are returning to the pre-pandemic levels when China was neither a major importer nor India a major billets exporter to China. India's steel predominantly meets domestic demand."